DA COSTA’S TAKEBlaming cold weather has become an easy out for forecasters missing their rosy U.S. growth estimates. Yet the snowy winter can explain only so much of the recent weakness in economic activity.

The labor market has now notched two consecutive months of disappointing job gains. New claims for unemployment insurance remain stuck around 340,000 per week.

Perhaps more worrying for Federal Reserve officials, the foundations of growth are again looking shaky. Consumer spending, which drove some of the fourth quarter’s surprisingly robust 3.2% annualized rate of growth, is now looking softer, prompting some economists to revise down their GDP predictions. Retail sales were weak across the board in January, including at online stores. Manufacturing output last month registered its biggest drop since 2009.

For now, Fed policy makers are taking the long view. “I was surprised that the jobs reports in December and January, the pace of job creation, was running under what I had anticipated. But we have to be very careful not to jump to conclusions,” Fed Chairwoman Janet Yellen said in testimony last week.

Still, if the bad streak continues or worsens, it would likely give the Fed pause about pressing on with its steady reduction in bond purchases. As for weather effects: America’s growth record has been pretty dismal in recent years despite a series of warmer-than-usual winters.

-By Pedro Nicolaci da Costa

GRAPHIC CONTENT
New businesses are feeling more confident and willing to hire, according to the fourth-quarter survey of new business founders released Tuesday by the Kauffman Foundation and LegalZoom. http://on.wsj.com/1jDqcce

MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD

Fed Imposes New Rules on Foreign Banks. The Federal Reserve voted Tuesday to impose new rules on the global banking sector that bring the U.S. operations of large foreign banks under Fed supervision, detailing steps banks must take to manage and prevent risk. http://on.wsj.com/1m6xNSf

Fed’s Williams Sees Further Tapering Even If Next Jobs Report is Weak. San Francisco Fed President John Williams told the L.A. Times in an interview he believes the U.S. economy will bounce back from a recent bad streak. http://lat.ms/MwOlWW

Five Things to Know About Incoming Cleveland Fed President. Loretta Mester, the former research director (and No. 2 official) at the Philadelphia Federal Reserve. She has argued against breaking up big banks but has yet to say much about monetary policy. http://on.wsj.com/1j9ek1Y

Will Yellen Improve on Bernanke’s Open Meeting Record? Janet Yellen presided over her first open Federal Reserve board meeting as chairwoman Tuesday. Which begs the question, will her track record on open meetings be better than that of her predecessor Ben Bernanke? http://on.wsj.com/1gfjsin

U.K. Labor Market Healing More Slowly. The pace of recovery in Britain’s labor market slowed around the turn of the year, official data showed Wednesday, strengthening the Bank of England’s case for keeping interest rates low to nurture a speedier recovery. A mixed labor report from the Office for National Statistics showed the unemployment rate edged up in the three months to December to 7.2% from 7.1% in the previous three months, a rise that took analysts by surprise. http://on.wsj.com/1m8UFQY

Hungary Cuts Key Rate Again Despite Forint Drop. Hungary cut its main monetary policy rate to a record low Tuesday in an effort to buoy recovery in an election year, despite the sharp weakening of its currency and the recent turmoil in emerging markets that has heightened the risk of capital outflow. http://on.wsj.com/1jClwTW

Chile’s central bank cuts main interest rate. The central bank reduced its key rate by 0.25 percentage point to 4.25%. The bank said it may need to add more stimulus to keep inflation projections around 3%. http://on.wsj.com/1eQJCp4

Brazil Central Banker Sees Inflation Falling in 2014, Beyond. Brazil’s struggle to bring down inflation is unlikely to end soon, though it’s showing early results, the country’s central bank governor indicated Tuesday. At the same time, Alexandre Tombini steered clear of joining a large chorus of emerging market central bankers blaming the U.S. Federal Reserve for recent financial market turmoil outside the U.S. http://on.wsj.com/1jNUR9U

Europe’s Banks Fret About Stress Tests. The European Central Bank on Wednesday will host a public hearing at its Frankfurt headquarters on the draft framework regulation for its new euro-zone banking supervisor. But most of the chatter is likely to be about what happens before that. http://on.wsj.com/1nLcd4x

Austrian Central Banker Backs End to ECB Bond Sterilizations. Ewald Nowotny told Reuters that he backs the Bundesbank’s support for suspending the ECB’s policy of draining funds from the banking system to offset its government-bond holdings http://reut.rs/1h5CAAk. WSJ first reported the Bundesbank’s position on Jan. 31. http://on.wsj.com/1bl19eo

Russian Growth Unlikely to Recover This Year: Central Bank Russia’s economic growth is unlikely to recover this year as previously expected as high volatility on the global market and the possible decline of commodity prices continue to drag on the economy, the Bank of Russia said Tuesday. The central bank says it now sees growth this year at between 1.5% and 1.8% compared with the government’s forecast of 2.5%. Still, the bank says it is not considering easing monetary policy and intends to stick by inflation targeting. http://on.wsj.com/1c1xrWL

Drop in Swedish Inflation Pressures Riksbank to Cut Rates. A surprising fall in Sweden’s inflation rate in January has put pressure back on the central bank to lower interest rates. http://on.wsj.com/1bJydgs

Skeptics Question Effectiveness of Bank of Japan’s New Move. The Bank of Japan surprised the markets Tuesday by expanding a pair of loan programs, a move that sent Tokyo shares higher and pushed the yen lower as many took it as a sign of the BOJ’s strong commitment to beating deflation. But some observers question how effective the programs will be once the initial market euphoria subsides. Here are some points raised by skeptics. http://on.wsj.com/1e4LsCL

Rising Inflation in Malaysia Turns Up the Heat on Central Bank. Fast-rising prices in Malaysia, as the government dials back subsidies and the economy grows at a strong clip, could prompt the central bank to raise interest rates that have been on hold since mid-2011 http://on.wsj.com/McblKh

Despite Recent Calm in Markets, Central Banks in Emerging Markets Not Out of the Woods Yet. Many of the fundamentals that prompted last month’s sell-off in emerging markets, such as large external financing needs and weak currencies, haven’t been resolved. http://on.wsj.com/1jbkoXS

Political Meddling With Fed, “House of Cards” Edition. Any Federal Open Market Committee members who binge-watched the Washington-based show over the weekend–the second season became available Friday on Netflix–may have been taken aback by something President Garrett Walker says in the seventh episode as he walks into the Oval Office. “Now if unemployment goes up more than two-tenths, I want the Fed to consider –,” Mr. Walker says to two men, before becoming distracted and trailing off. Of course, (fictional) political interference with monetary policy is far from the most serious offense on the show.

Man vs. Machine or Can the Bots Work for Humans?
For Robert Gordon, an economics professor at Northwestern University, the U.S. economy’s best days, economically speaking, are in its past. In a paper released Monday, the economist builds on his argument that future U.S. growth rates will fall well short of those in the past. Mr. Gordon warns that those who believe technological innovation will overturn this dark forecast are betting on the wrong horse. http://on.wsj.com/1dJ2oTShttp://www.nber.org/papers/w19895

Others are less downbeat about the impact of technology. In “How the rise of smart machines will affect the US economy and jobs: A Q&A with Erik Brynjolfsson and Andrew McAfee,” by Jim Pethokoukis at the American Enterprise Institute, the authors argue there is plenty of promise in new technologies that is being underappreciated by outdated economic statistics. http://bit.ly/1h2hind

A recent Bank of France paper examines productivity across major countries from 1890 (yes, 1890) to 2012. The study finds “one big wave” of productivity growth that started in the U.S. between the world wars and spread to other major economies after World War II. A smaller wave occurred in the U.S. with the rise of information technology. “A global downward break following the subprime crisis and as soon as the mid-2000s in the US is observed, casting doubt on the prospects of the ICT revolution, although the long lag in the diffusion of the second industrial revolution shows that technology clusters may not yield all their benefits within a decade,” the study concluded. https://www.banque-france.fr/uploads/tx_bdfdocumentstravail/DT_475.pdf

COMMENTARYIs China Headed For a Debt Crisis? RBS Says No. Worries about a possible debt crisis in China have emerged as a pressing question over the past year as the country’s overall debt level rises quickly and the recent specter of defaults in the shadow banking system rattles financial markets in China and abroad. But The Royal Bank of Scotland says two key metrics should put investors at ease. http://on.wsj.com/1cYu3w4

BASIS POINTS
- Raising the federal minimum wage to $10.10 per hour would cost the U.S. economy about 500,000 jobs by late 2016, but the increase would lift 900,000 Americans out of poverty at the same time, according to a new study by the Congressional Budget Office. http://on.wsj.com/1cZ4vyV

- U.S. household debt late last year posted its largest quarterly increase since 2007. The quarter also marked the first time since the recession that household debt posted an annual gain. http://on.wsj.com/1h2H1f4

- A key project for Indian central bank governor Raghuram Rajan aimed at luring foreign banks into the country appears to be on shaky ground as Citigroup takes a pass. http://on.wsj.com/1cWtLFM

About Real Time Economics

Real Time Economics offers exclusive news, analysis and commentary on the U.S. and global economy, central bank policy and economics. Send news items, comments and questions to the editors and reporters below or email realtimeeconomics@wsj.com.